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Services to lenders bulletin - unfair relationship: another nail in the (PPI) coffin

On 4 October 2012, Recorder Yip QC sitting in the Manchester County Court handed down one of the first judgments in PPI litigation since the Harrison v Black Horse appeal was withdrawn from the Supreme Court. In Plevin v Paragon Personal Finance Limited & LL Processing (UK) Limited (in Liquidation), the Court was faced with a claim which had already been subject to four amendments with another proposed at the start of the trial. As a result, the claim was heard over the course of four days.

Despite the length of the Particulars of Claim produced by Mrs Plevin’s solicitors, the facts of the case were simple. In 2006 Mrs Plevin had wished to take out a loan to fund some home improvements and consolidate her existing debt. She therefore contacted a broker, LL Processing (UK) Limited (“the Broker”) and subsequently entered into a 10 year secured loan for £34,000 and a 5 year PPI policy for £5,780 with Paragon Personal Finance. Later in 2006, Mrs Plevin wished to move house and she therefore contacted Paragon to see whether her mortgage could be moved to a new property. Although Mrs Plevin’s original loan was unregulated due to the amount borrowed, by an administrative mistake Paragon treated her loan as regulated and sent to Mrs Plevin a modifying agreement for her to execute. After moving house, in 2007 Mrs Plevin took out a further, smaller loan with Paragon and for which she did not take out PPI.

Against this background, and in Recorder Yip QC’s own words, the claim was “grossly overcomplicated by the way in which it [was] presented by the Claimant’s legal representatives”. The original Particulars of Claim issued in 2009 alleged breach of statutory and/or fiduciary duty by the broker, of which Paragon had actual or constructive knowledge; that the agreement was a multiple agreement; and unfair relationship under s.140 of the Consumer Credit Act 1974 (“the Act”). In 2010 the Particulars were amended to include general, vague allegations in relation to PPI cases. In 2011 the Particulars were amended still further to add new claims in relation to the modifying agreement; alleged breaches of the Unfair Contract Terms in Consumer Contracts Regulations 1999; and breaches of various codes of conduct (such as the FISA and FLA Codes). In May this year the Claimant made a further application to amend, which was dismissed after a day’s hearing. At the start of the trial the Claimant’s solicitors attempted to effectively make the same application to amend again, but did not pursue the application. The trial therefore progressed under only two substantive heads of claim: unfair relationship and multiple agreement.

Unfair Relationship

Mrs Plevin argued that the relationship in this case was unfair because of five main grounds: first, that the PPI was misrepresented as being compulsory; second, that Mrs Plevin was not properly advised that the PPI would be charged as a single premium bearing interest for 10 years; third, that there was inadequate disclosure of the cost of the PPI and that Paragon, the Broker and insurer would receive commission which also created an ‘unwholesome incentive’ for the Broker to sell PPI; fourth, that the PPI was in any event unsuitable because Mrs Plevin already had existing cover through her employment benefits; and fifth, that the terms of the PPI itself were unfair as it did not last for the full term of the loan (5 years cover as against a 10 year loan term).

The problem faced by Mrs Plevin in maintaining these arguments was that following the withdrawal of the appeal to the Supreme Court in Harrison v Black Horse, the robust decision of the Court of Appeal remains good and binding law. Mrs Plevin therefore tried to advance some novel arguments in an attempt to avoid being caught by the ambit of the Harrison decision.

The primary difficulty faced by Mrs Plevin was that the loan and PPI had not been sold to her by Paragon, but rather by the Broker who by the time that the litigation had been brought, was in liquidation. In order to attempt to avoid this, Mrs Plevin argued that it did not matter whether it was Paragon or the Broker who was responsible for non-disclosure or misrepresentation and that the wording of s.140A(1)(c) of the Act: ‘any other thing done (or not done) by, or on behalf of, the creditor” provided for this. Recorder Yip QC rejected this proposition. Under the terms of ICOB, only the customer facing insurance intermediary was bound to comply with the ICOB Rules: i.e. the Broker and not Paragon. Given the findings of Tomlinson LJ in Harrison, this meant that for something done or not done by the Broker to be on Paragon’s behalf, there would need to be a finding that the Broker was acting as Paragon’s agent and that was not the case here.

In relation to the allegation that the PPI was compulsory, Recorder Yip QC found that this was not supported by the evidence. Mrs Plevin had no recollection of the initial conversations she had held with the Broker, other than that the PPI had been mentioned in a packaged way. Indeed, her evidence was that she may have expected to have insurance in relation to a “mortgage sized loan”. In any event, the documentation sent to Mrs Plevin in relation to the loan and PPI all made clear that the PPI was optional and Mrs Plevin admitted in cross examination that she had completed the application form herself, including ticking the box to request PPI for the loan. On that basis, there could be no claim that the PPI had been misrepresented as being compulsory.

The next argument raised by Mrs Plevin was that had she known of the size of the commission payments made in relation to the PPI, she would have certainly questioned this (although it should be noted that in her evidence, she did not go so far as to say that she would not have taken out the PPI had she known about the commission). Recorder Yip QC noted that she was “not impressed” by the size of the commission payments (some 72% of the premium), but given the decision in Harrison, this was not the test required to be applied. Harrison made clear that the ICOB Rules do not require disclosure of commission arrangements and that even where the conduct of the broker or lender in relation to taking large commissions may be regarded as “beyond the Pale”, that would not be enough to create an unfair relationship. Further, Recorder Yip QC noted that whilst Mrs Plevin no doubt had suffered “buyer’s remorse” in relation to her decision to take out PPI, following the Harrison decision, a seller is not obliged to warn a buyer of whether his product is expensive, or how the price charged has been arrived at.

Mrs Plevin tried to rely on the case of Yates v Nemo Personal Finance, which was decided before Harrison and in a more borrower-friendly manner. It was argued that Harrison had not been able to follow the Yates decision because of the existence of a tightly worded script that meant that the seller of the PPI could not be improperly influenced by commission payments. Here, it was argued, there was no such tightly worded script and therefore the commission may have induced a misrepresentation by the Broker to induce Mrs Plevin to take out the PPI. This argument was rejected. Mrs Plevin had been provided with documentation that made clear that the PPI was optional and she had received a clear total price which she was happy with. She had also probably received the FISA Borrower Information Guide which made clear that a commission may be paid to the Broker.

Given that it was the Broker and not Paragon who had arranged the loan and PPI, Mrs Plevin’s arguments that the PPI was not suitable for her also fell away. Paragon was under no duty to establish whether the product was suitable. As a result of all this, it was found that there could be no unfair relationship between Mrs Plevin and Paragon.

Multiple Agreement

Mrs Plevin also claimed multiple agreement within s.18 of the Act with the effect that the PPI element should be regarded as a separate, regulated agreement which had been incorrectly executed and hence unenforceable. Here, recorder Yip QC had to look at the differing academic arguments as to ‘unitary’ or ‘multi-part’ agreements. Paragon argued that whilst the agreement included both a cash loan and PPI, it should be regarded as a unitary agreement. Whilst there may be two different elements to the loan, without the cash loan the PPI could not exist. As a result, it was found that once the PPI had been accepted by Mrs Plevin, it became part of the main loan with interest charged and repayments taken on the basis of the total sum. Recorder Yip QC also accepted Paragon’s argument that the main purpose of s.18 was antiavoidance, but in this case the cash loan could never have been regulated as it exceeded the limit in place at that time (£25,000) in any event. There was therefore no multiple agreement.

Mrs Plevin’s claim therefore failed in its entirety. Against this, Recorder Yip QC considered the conduct of Mrs Plevin’s legal representatives, Miller Gardner. Their costs, including a very significant ATE insurance premium, amounted to some £320,000 by the time of trial as against a maximum claim value of some £5,000. Despite the level of costs incurred, Recorder Yip QC also found that Miller Gardner had failed to get to the bottom of the factual case, this had caused the repeated amendments to Mrs Plevin’s claim and the eventual abandonment at trial of all but two of the heads of claim, and that there could be “no justification” for the way in which the claim had proceeded.

As against this background, Paragon had made a without prejudice offer to Mrs Plevin back in 2010 on a commercial basis simply to see an end of the litigation. Miller Gardner had rejected that offer and therefore did significantly worse at trial than could have been achieved two years previously. Recorder Yip QC held that as a result, and given her “real concerns” over Miller Gardner’s conduct, it would be appropriate to order that Mrs Plevin pay Paragon’s costs on the indemnity basis in relation to the entirety of the action. This is the strongest order that a Court can make and is illustrative of the displeasure with which Miller Gardner’s conduct was regarded. It was clear from the amount in question as against the costs incurred that the litigation had been run only to benefit Mrs Plevin’s solicitors; and not to achieve the best result for her.

Generally, given the findings by the Court of Appeal in Harrison and Recorder Yip QC in Plevin, claimant solicitors now have little chance of successfully continuing with claims in relation to PPI mis-selling. Further, the Courts are now very much alive to the fact that such claims cannot be regarded as being in borrowers’ best interests. The industry that has grown up around PPI should beware.